Howdy market watchers! 

Just ten days until Christmas, but more importantly, today is my son’s 4th birthday!  We are heading to see Christmas lights, meet Santa and enjoy a cold train ride. 

Business and entrepreneurship are exhilarating, but I’m looking forward to spending more quality time with my young kids as time is already passing by just as fast as everyone warned me it would. Life is delicate and so as we approach another new year, let us all refocus on spending more time doing the things and with the people that mean the most.  

This past week seemed to fly by with holiday events and year-end planning keeping the schedule full.  Unique to recent headlines, the Dow Jones finished the week with 7-consecutive days of lower closes, the longest losing streak since 2020.  Just another reminder of how strong the equity markets have been since COVID times.  

Meanwhile, the US dollar index continues to strengthen with 6-consecutive session of gains. This has been a headwind for commodity markets overall, but I feel we are getting to a point of this being ‘priced-in’ unless we make another leg higher.  It’s going to take more than Fed interest rate cuts, expected at next week’s FOMC meeting, to soften the US dollars push given growing uncertainty around the world.  As they say, we are the cleanest shirt in the dirty laundry and the US dollar’s safe-haven status is alive and well despite rhetoric otherwise.  There is still a chart gap down below 104.00 that we could and should eventually fill.  
 

This played out on a concerning scale this week with the fall of Asad’s 24-year rule in Syria.  With the Asad-regime being backed by Russia and Iran, this shift deals another blow to those ‘axis’ powers that operate to undermine democracy in the Western world. Syria is not a major oil producer or exporter, but geopolitical headlines are still market movers when it comes to crude oil and we saw that translate to price strength this week with 5-consecutive days of higher closes.  This also follows OPEC’s recent decision to delay production increases until demand and sentiments become more defined with countervailing forces clouding the outlook. 
 

China announced another round of stimulus on Monday that helps boost market sentiment but is also a sign of underlying weakness in the economy.  With the incoming Trump Administration keeping tensions elevated with Beijing, we are likely to see continued posturing and opaqueness as the stage is set for a policy fight.  

However, economics should still win out in the end and the US is fairly competitive right now despite US dollar strength.  Soybean prices FOB NOLA are around $400 per metric ton while it is $430 per metric ton FOB Brazil with Panamax freight rates only $4 per metric ton higher from the US Gulf versus Brazil.  US corn through NOLA or the PNW is also cheaper vis-à-vis Brazil at the moment with fewer logistics issues as often experienced in South America at harvest. 

Brazil weather continues to be favorable as the 1st crop corn crop and soybean planting wraps up except for bean planting in the RGDS that is in its final stage.  Given such weather improvements, traders were expecting meaningful upgrades in this week’s monthly update of Brazil’s crop production by CONAB, the local equivalent of USDA.  Surprisingly, however, CONAB only increased Brazil soybean production by 0.1 million MT to 166.2 MMT versus USDA’s current 169.0 MMT.  CONAB cut Brazil’s corn output by 0.2 MMT to 119.6 MMT versus USDA’s current 127.0 MMT.  It is of course very early in the growing season, but these differences between CONAB and USDA are market moving and will be watched carefully over the coming months along with weather developments.  

The USDA also updated its monthly Crop Production and WASDE reports on Tuesday this week with several surprises largely from the cut in 2024/25 ending stocks for corn.  Last month, the USDA had US corn ending stocks at 1.938 billion bushels with average trade guesses pre-report at 1.902 billion bushels while the agency cut to 1.738 billion bushels.  US soybean ending stocks were left unchanged despite trade guesses for a 3.0 million bushel increase.  US wheat ending stocks were also cut more than expected down to 795 million bushels versus last month’s USDA figures that matched average pre-report trade guesses at 815 million bushels.  

World ending stocks for corn also came in lower than expected and 7.7 million MT versus last month.  Global soybean ending stocks increased, but only by 0.2 MMT versus expectations for a 1.1 MMT increase.  Wheat ending stocks were increased by 0.3 MMT, just slightly ahead of expectations. 

 

Australia’s wheat production was unchanged at 32.0 MMT, but we’re hearing more reports that due to heavy rains at harvest that as much as 3-4 MMT or 10 percent of the country’s crop could be downgraded to feed grade.  Russian export taxes on grain exports are also going into effect this week that are being further effected by the strength in the Ruble and making exports less attractive that tightens up global supplies.  EU’s wheat crop was cut 1.3 MMT from last month given heavy rains that have plagued winter wheat harvest in France and Germany this past year.  Meanwhile, on the demand front, Saudia Arabia tendered for 595,000 metric tons this week and trade is picking up.  

In other international news, Malaysia noted the risk for palm oil production declines in the order of 10-20 percent due to excessive flooding.  This should help support the oilseed complex as global crush demand has maintained a solid footing.  
 

Speaking of solid ground, the cattle market continues to hold it together despite the slippage in equity markets.  While feeder cattle contracts peaked on Thursday with some profit taking as the Mexico border is said to be reopening earlier than expected, the fat cattle contracts have surged driven by exceptional strength starting Thursday in cash fed cattle trade. What started as $192 trades quickly escalated to $194 and then $195 that continued through Friday in western Nebraska. December Live cattle futures reached $193.825 on Friday, just above Thursday’s high and not seen since October 2023.  

Be cautious here of holiday trade peaking out and softening up through year-end.  Managed funds are heavy longs in the livestock complex that will at some point be at risk of liquidation.  According to the Commitment of Traders report released Friday showing positions as of Tuesday, managed money positions are long Live cattle contracts at 126,308, just 28,242 from the record net long.  For feeder contracts, managed funds are around 2,000 contracts short of the net record long of 21,910.  

If you feel the market could work higher, but would like to get some price insurance in place as I would advise, buy puts or LRP instead of hedging.  Hedgers can also buy call options to help keep the upside open. Give me a call to discuss strategies and remember that a 10 percent correction in this market is $25 per cwt. Such a correction, which would still keep the bullish trend intact, would wipe out a lot of profit.  

At this time last year, the market was undergoing a multi-month correction lower.  I do however believe we could still see contract highs, but not until early 2025. 

Sidwell Strategies is the one-stop shop to protect cattle with futures, puts, LRP or a combination of all, which is probably the best strategy overall.  If you’re ready to trade commodity markets, give me a call at (580) 232-2272 or stop by my office to get your account set up and discuss risk management and marketing solutions to pursue your objectives.  Self-trading accounts are also available.  It is never too late to start and there is no operation too small to get a risk management and marketing plan in place.  

Wishing everyone a successful trading week!  Let us know if you'd like to join our daily market price and commentary text messages to stay informed!

Brady Sidwell is a Series 3 Licensed Commodity Futures Broker and Principal of Sidwell Strategies.  He can be reached at (580) 232-2272 or at brady@sidwellstrategies.com.  Futures and Options trading involves the risk of loss and may not be suitable for all investors. Review full disclaimer at https://www.sidwellstrategies.com/fccp-disclaimer-21951.